Mo Failure Stems Cocoa Bull, Presents Correction-vs.-Reversal Dilemma

April 9, 2018 8:55AM CDT

The 240-min chart below shows overnight's continued short-term slide leaving Thur's 2534 high in its wake as the latest smaller-degree corrective high this market now is required to sustain losses below to maintain a more immediate bearish count. Its failure to do so will confirm a bullish divergence in short-term momentum, stem the slide and expose at least an interim (B- or 2nd-Wave) corrective rebuttal or a (5th-Wave) resumption of the major uptrend.

Cocoa May '18 240min Chart

Overnight's failure below 2430 is important on a broader, daily basis below because it confirms a bearish divergence on this scale that, in fact, breaks the major uptrend from 22Dec17's 1804 low. This bearish divergence in daily mo identifies 02-Apr's 2647 high as one of developing importance and our new long-term risk parameter from which non-bullish decisions like long-covers and cautious bearish punts can be objectively based and managed.

Given the extent of the Dec-Apr rally shown in the weekly log chart below, we strongly suspect that the current setback and whatever price action the market has in store for us in the weeks ahead is a (4th-Wave) correction within the major new bull trend ahead of an eventual resumption of that bull top new highs above 2647. This said, the market's return to some of its most bullish sentiment in two years and its rejection of a pair of Fibonacci retracement and progression relationships in the 2652/55-area cannot be ignored as contributing to the prospect for a larger-degree reversal lower.

Today's bearish divergence in daily momentum exposes the not uncommon correction-vs.-reversal debate now that we know for a fact that the uptrend has been threatened. Fortunately, the market has identified last Mon's 2647 high as THE new long-term risk around which this debate centers. As long as that high remains intact, a bigger correction or reversal lower should not come as a surprise. A recovery above this level reinstates the major bull to levels indeterminately higher thereafter.

These issues considered, a cautious bearish policy is advised with a recovery above 2534 exposing a (B- or 2nd-Wave) corrective rebuttal to last week's slide and what could be a preferred risk/reward selling opportunity from the upper-quarter of the past week's range OR a resumption of the major bull. In lieu of at least such 2534+ strength further lateral-to-lower prices should not surprise.

Cocoa Weekly Chart

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